Treasury Yields Rebound After Early Drop
May 07 2021 - 4:24PM
Dow Jones News
By Sam Goldfarb
U.S. government bond yields swung sharply Friday after a
disappointing jobs report caught traders off guard but didn't
fundamentally change Wall Street's mostly optimistic outlook on the
economic recovery.
The yield on the benchmark 10-year U.S. Treasury note fell as
low as 1.487%, according to Tradeweb, compared with roughly 1.570%
just before the report was released and 1.561% Thursday. But it
quickly rebounded and ultimately settled at 1.576%.
Yields, which fall when bond prices rise, initially slid after
the Labor Department said the economy added 266,000 jobs in April,
well short of the one million new jobs that economists had
anticipated and down from 770,000 jobs added in March.
The "report was pretty uniformly disappointing," said Ian
Lyngen, head of U.S. rates strategy at BMO Capital Markets. Still,
it was "not all that surprising given the fact that economic data
in the middle of a pandemic is always difficult to estimate," he
said.
After starting the year below 1%, the 10-year Treasury yield
climbed to around 1.75% in March, as investors bet that vaccine and
government-spending fueled economic rebound would spur inflation
above the Federal Reserve's 2% annual target. Yields have since
subsided as investors take a more wait-and-see approach to the
recovery.
The bond market's reaction to the jobs report suggested
investors weren't too worried about the economic outlook but were
continuing to re-evaluate how soon the Fed will be able to raise
short-term interest rates.
While the 10-year yield ticked higher, yields on shorter-term
Treasurys ended lower on the day. The yield on the five-year note
settled at 0.770%, down from 0.796% Thursday and its recent peak of
0.973% set in early April. The yield has declined for six straight
sessions, a sign investors think the Fed could be slower to tighten
monetary policy than they previously expected.
Over the short-term, a more accommodative Fed might reflect a
slightly weaker economy than investors were hoping for. Still, that
policy approach could boost the economy over a more extended
period, making longer-term Treasurys like the 10-year note or
30-year bond less attractive to investors. The 30-year bond yield
settled Friday at 2.275%, up from 2.236% Thursday.
Friday's data was just the latest this week to come below
analysts' expectations.
On Monday, the Institute for Supply Management's index of
manufacturing activity came in at 60.7 in April -- down from 64.7
in March and below expectations for a 65.0 reading. On Wednesday,
the ISM said its index of activity in the services sector fell to
62.7 in April from a record high of 63.7 in March. Economists
polled by The Wall Street Journal had expected a reading of
64.1.
In both cases, the readings were still well above 50, indicating
an expansion of economic activity.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
May 07, 2021 16:09 ET (20:09 GMT)
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